A study of the economic data for the real estate industry published in recent weeks for 2007 seems to confirm the suspicion that a change in the economic cycle is imminent in this sector.
Tighter mortgage lending guidelines by banks, in order to counteract a possible subprime crisis similar to that in Spain, or at least to prevent the current situation from worsening, an ever-increasing supply of vacant properties despite stagnating and, in some places, even falling property prices, numerous construction companies filing for bankruptcy and the mass closure of small and medium-sized real estate agencies paint a clear picture.
However, it is precisely the economic situation of estate agents that best reflects the bursting of the ‘property bubble’ predicted by many.
While banks and construction companies generally have greater scope to deal with the crisis, estate agents are more dependent on day-to-day business than any other economic player in this segment.
Where builders are switching from selling to renting their newly constructed properties, the air is getting thinner for estate agents, who are regularly dependent on lucrative sales brokerage to generate significant profits.
It is therefore not surprising that in 2007 alone, approximately 32,000 estate agencies had to close their doors across Spain, representing a loss of almost 40 per cent of all agencies that had previously existed.
On closer inspection, however, these figures reveal much more than the very likely end of an economic cycle.
In reality, the unprecedented mass closure of estate agencies raises the question of whether the underlying data for the real estate industry has simply facilitated the long-overdue self-cleansing of this service sector.
This is despite the fact that less than eight years ago, the situation was exactly the opposite.
Until mid-2000, only those who had passed a state brokerage exam, which in turn could only be taken by those who already had a university degree, could work as brokers in Spain. However, Royal Decree 4/2000 of 23 June on urgent measures to liberalise the real estate and transport sectors (Real Decreto-ley 4/2000, de 23 de junio, de Medidas Urgentes de Liberalización en el Sector Inmobiliario y Transportes) changed this completely.
Although doubts had already been raised in case law about the legality of such entry requirements for practising the profession, it was only this Royal Decree that officially removed all barriers to practising as a real estate agent.
The opening of the market thus ended the decades-long monopoly of state-certified real estate agents (Agente de la Propiedad Inmobiliaria, or API for short) who belonged to their own chamber.
Instead of being reserved for highly qualified experts, anyone could now try their hand at acting as an intermediary between buyers and sellers.
However, alongside the desired consequences of deregulation, the feared side effects of deprofessionalisation and amateurism, combined with dubious and even illegal practices, also became apparent.
The economic relevance of the transactions carried out in this area and the tempting nature of the job for opportunistic brokers, who were confident that Spanish administrative officials would be negligent or inactive in enforcing building and tax laws, led to more than just a few dissatisfied customers.
The state-certified brokers, who continue to operate in what is now a free market, have spoken out on several occasions in this context and pointed out in a very illustrative manner the absurdity of the fact that fruit and vegetable sellers in Spain require an administrative licence to handle food, but real estate can be brokered without any entry requirements.
Law 10/2003 of 20 May on urgent measures to liberalise the real estate and transport sectors (Ley 10/2003, de 20 de mayo, de medidas urgentes de liberalización en el sector inmobiliario y transportes), which came into force later, maintained the freedom to practise the profession of real estate agent, but Article 3(b) of this law also clarified that, despite generally unrestricted access to this profession, ‘for the purposes of consumer protection, relevant provisions may require the fulfilment of certain conditions.’
What initially seemed appropriate to ensure at least a certain minimum level of transparency and consumer protection remained a mere fiction for customers, however, as there is still no corresponding provision to this day.
The legal obligation of every estate agent to have professional liability insurance would, on its own, create a liberalised market with minimum guarantees for consumers.
Despite all the announcements and promises made by the government, however, a corresponding legislative initiative still seems a long way off.
Meanwhile, state-certified brokers and the Spanish Ministry of Housing have been trying to prevent the traditional brokerage profession from bleeding to death.
Since state examinations have been effectively abolished (the relevant ministry has not set any new examination dates since liberalisation in 2000), no new state-certified estate agents are being added, while the old ones are gradually retiring, so it was only a matter of time before this body disappeared completely.
In order to maintain the idea of a qualified estate agent with certain minimum guarantees, the Ministry of Housing has decided to revive the old official estate agents’ association with new impetus. This was done by passing Royal Decree 1294/2007 of 28 September, which establishes the statutes of the real estate agents’ associations and their General Council (REAL DECRETO 1294/2007, de 28 de septiembre, por el que se aprueban los Estatutos Generales de los Colegios Oficiales de Agentes de la Propiedad Inmobiliaria y de su Consejo General).
Although it is no longer necessary to pass a state brokerage exam, new applicants must now have a university degree.
When hiring such ‘Agentes de la Propiedad Inmobiliaria’, consumers can be sure that they have a minimum level of professional competence, that a security deposit has been paid to the Chamber of Real Estate Agents, and that adequate commissions are charged, because unlike other market participants, the local chambers prescribe the amount of their commissions to their members in order to prevent abuse (usually ‘APIs’ charge 3 per cent of the purchase price as a brokerage commission, while other independent brokers often charge 10 per cent commission).
It is therefore not surprising that, according to the president of the Madrid Chamber of Estate Agents, 9,000 estate agencies had to close last year in Madrid alone – not a single one of these cases involved an API.
On the contrary, the association actually grew in size throughout Spain in the first six weeks of 2008.
Of course, there are also reputable estate agents outside the ‘Agentes de la Propiedad Inmobiliaria – API’ collective, but before signing any contract, you should always check the exact terms and conditions, as you will not be able to do so afterwards.
eifelsfall as a supervisory authority and, if the agent is not a member of a professional association, only the courts remain as a ‘point of contact’.
